Carlos Garcia Rawlins/Reuters
- Venezuela has announced another series of desperate measures to try and save its economy from collapse.
- The government will devalue to Venezuelan bolivar by 95%, and peg it to the government’s oil-linked cryptocurrency.
- Venezuelan authorities are trying to contain rampant inflation of more than 1,000,000% per year.
Venezuelan President Nicolas Maduro announced a series of drastic economic reforms over the weekend, in another desperate attempt to prop up the country’s flailing economy.
The key changes, which will come into effect from today:
- Devalue Venezuela’s currency, the bolivar, by a whopping 95%. The new currency will be renamed the “sovereign bolivar.”
- Instead of an exchange rate of 250,000 bolivars per US dollar, it will increase to around 6 million.
- According to Bloomberg, the new bolivar will be pegged to the government’s own cryptocurrency, the petro.
- The sovereign bolivar will move in line with changes in the petro, which itself is linked to movements in oil prices.
- The petro is valued by the Venezuelan government at around $60, or 3,600 sovereign bolivars.
- To make things more complicated, the new sovereign dollar will also be re-denominated, which will remove about five zeros from its unit measurement.
- At the same time, President Maduro also announced a huge 3,000% increase to the minimum wage.
- So in the new re-denominated currency, a person on the minimum wage will receive around 1,800 sovereign bolivars a month, instead of 1.8 million.
- The new minimum wage will be the equivalent of around $30 per month.
The government will also end some gasoline subsidies and raise the value added tax (similar to the GST in Australia) by around 4% — moves which it says will save around $10 billion per year.
The weekend announcements are the latest round of unorthodox measures used by Venezuelan authorities to stabilise the economy and put a lid on rampant inflation.
Last month, a report from the IMF said Venezuela’s economy is expected to contract by around 18% in 2018, while inflation is forecast to reach 1,000,000%.
According to Bloomberg, the latest measures are unlikely to provide a quick fix for the economy, and there are risks that inflation will climb even faster.
Reports indicate that Venezuelan shop owners are concerned about how the new minimum wage will effect their ability to pay staff.
So far this year, more than 400,000 Venezuelans have left to neighbouring Ecuador, as the country tinkers on the brink of economic collapse.
In addition, Brazil has sent military troops to the Venezuelan border to monitor the flow refugees, after local residents attacked Venezuelan migrants who were entering the country.